By: Akinwumi Ogunranti
Canada has been criticized for failing to meet international law’s obligations to protect human rights, including as prescribed by soft law under the UN Guiding Principles on Business and Human Rights (UNGPs). Against this background, this short piece discusses the recent Bill S-285, which seeks to amend the Canada Business Corporations Act (CBCA) to include a corporate purpose for the benefit of the environment and society. The Bill, if signed into law, will follow contemporary legislative developments in the business and human rights (BHR) field that are hardening the UNGPs. However, without strong government support, the Bill may die naturally or result in weak legislation due to corporate capture.
Bill S-285
Bill S-285 proposes to define corporations in terms of their purpose by amending Article 14 of the CBCA. The purpose of the modern corporation would be:
- to pursue its best interest while also operating in a manner that
(a) benefits the wider society and the environment in a manner proportionate to its size and the nature of its operations; and
(b) minimizes any harm that the corporation causes to the wider society and the environment, with the objective of eliminating such harm.
The Bill also amends Section 6(1) of the CBCA to allow corporations to include the purpose in the articles of association, which become contracts between corporations and their shareholders and between shareholders themselves. The Bill would expand the duties of directors and officers by amending Section 122 (1) of the CBCA. Directors and officers would not only have a duty to act in the best interest of the corporation, but they must also pursue those interests in a manner that benefits society and the environment. They must also minimize and remediate harm whenever it occurs. Unlike the present version of the CBCA and the case law, which gives directors discretion to consider stakeholder interests, the proposed amendment makes stakeholder consideration compulsory—a move toward a stakeholder governance model.
The Bill also contains disclosure requirements. The proposed Section 172.2 (1) of the CBCA requires corporations to file an annual report demonstrating their compliance with the corporation’s purpose. The report will include corporate measures taken to impact society and the environment and to minimize and remediate harm. This report is also required to be filed according to prescribed standards, including the Corporate Sustainability Reporting, Global Reporting Initiative, and the B Impact Assessment. The report would also be a public record issued to shareholders and the public.
In terms of enforcement, the Bill offers a remedy to rightsholders who believe the corporation is not run according to its purpose. It proposes amending Section 239 of the CBCA (derivative action). Presently, complainants using this procedure must satisfy the court that they have given at least 14 days’ notice to the Corporation, that they are acting in good faith, and that the application is in the corporation’s interest. However, the Bill seeks to replace the last condition. Complainants must now show that the application is consistent with the corporation’s purpose relating to human rights, the climate, and the environment. Complainants need not have the best interest of the corporation at heart; they only need to be interested in the corporation’s commitment to society and the environment. This interpretation is consistent with the Bill’s proposal of a “proper person.” The Bill proposes adding another sub-section to section 239, which defines a proper person as someone pursuing the interests of the wider society or the environment. Therefore, a proper person includes rightsholders.
Significance and potential challenges of Bill S-285
Since the UNGPs’ endorsement in 2011, it has influenced legislative developments in the form of mandatory human rights due diligence in some countries, including France, Norway, and Germany. The EU recently adopted the Corporate Sustainability Due Diligence Directive (CSDDD) in 2024 to further the UNGPs’ objectives. Canada has been lagging in these normative developments. Previous legislative proposals to join this trend have not progressed well. For example, Bill C-262, the Corporate Responsibility to Protect Human Rights Bill, which proposes human rights due diligence for Canadian corporations operating abroad, has not proceeded beyond the first reading in the House of Commons since 29 March 2022, when it was first introduced. There was a silver lining with the passing of the Fighting Against Forced Labour and Child Labour in Supply Chains Act in 2023. However, the Act has a limited scope because it only imposes reporting obligations on multinational corporations to prevent, mitigate, and remediate business risks related to forced labour and child labour.
Building on this latest legislation, Bill S-285 seeks to change the corporate governance model in Canada. By amending the CBCA, all corporations registered under the CBCA would be required to change their corporate purpose. Similarly, provinces that model their corporate legislation along the CBCA may further amend their legislation to align with the CBCA. This top-down approach will create a uniform legislative regime in Canada.
One significant aspect of the proposed amendment is that it moves the Canadian corporate governance model toward a stakeholder approach. The proposed amendment goes beyond the minimalist provisions of the UNGPs. Pillar II of the UNGPs provides that corporations should avoid infringing on human rights and address violations whenever they occur without imposing any positive obligations on corporations. Expectedly, this has generated a debate about whether multinational corporations have both positive and negative obligations not only to prevent human rights abuse but also to promote human rights. The proposed Bill in Canada supports the argument that corporations, indeed, have positive obligations.
The Bill also has some transnational implications as a federal legislation. The amendment seeks to cover subsidiaries of corporations incorporated in Canada. For example, the proposed amended section 172(2)(1) allows the corporation and its affiliates (including subsidiaries) to file an annual compliance report. Similarly, the proposed section 239(2)(c) allows rightsholders to file a derivative action based on either the purpose of the corporation or its subsidiary. Therefore, in cases where subsidiaries of Canadian parent companies operate outside Canada, in Africa for example, any Canadian resident or affected rightsholders in Africa can file a derivative action to enforce corporate obligations towards the society and the environment. This, in effect, supports transnational litigation because the definition of a proper person under the Bill is wide. Therefore, litigants in Canada and abroad jump the locus standi hurdle when filing a derivation action.
If the Bill succeeds, Canada will join other countries, including France, that have amended their corporate laws to redefine corporate purpose. Indeed, the Bill is modeled on the French legislation and the UK Better Business Act initiative, which seeks to amend Section 172 of the UK Companies Act. The Bill is similar to the French legislation because it creates a general commitment for all corporations instead of creating optional corporate vehicles to promote corporate social responsibilities like in the United States. Scholars are optimistic that the French model has the prospect of providing new legal foundations for corporate responsibility and redefining “the enterprise as not only an economic organization or a productive entity, but more fundamentally a space for innovative collective action.” In sum, if signed into law, the Bill becomes a foundation upon which Canada’s business human rights regime can be built.
However, the Bill has some implications for businesses. It imposes additional fiduciary duties on directors. This could lead to complex decision-making, which may disincentivize some individuals from accepting director positions. It also seeks to radically change the corporate governance model (shareholder primacy), which has historically enjoyed less stakeholder supervision. The new model (stakeholder governance) opens corporations to potential suits from litigants within and outside Canada. Finally, the Bill indirectly introduces human rights due diligence (HRDD) by requiring corporations to file annual reports on how they prevent environmental abuse and promote societal flourishing. According to Pillar II of the UNGPs, an authoritative standard, the only way to show corporate responsibility is through HRDD, which requires identifying, preventing, mitigating, and remediating business risks affecting third parties. Therefore, if corporate annual reports are to meet international standards, they must reflect the characteristics of HRDD.
Considering the implications for businesses, if the history of mandatory human rights due diligence legislation and the Corporate Sustainability Due Diligence Directive in other countries is anything to go by, businesses and industry associations will likely resist this change or weaken it. The corporate strategy against legislation of this nature is to first prevent the discussions from taking place, then undermine efforts to enact the legislation, and, failing that, weaken the final product. This is not to conclude that all business communities oppose and weaken corporate legislation, but as Daniel Kinderman noted, any transition from a voluntary private governance model to a mandatory one like the proposed Bill will likely be resisted. One way to avoid business opposition is to include them in the law-making process.
However, this may have unintended consequences as it may lead to corporate capture that may still weaken the legislation. For example, although experts, including Barnali Choudhury and Penelope Simons, testified before Canada’s parliament that Bill S-21, now the Fighting Against Forced Labour and Child Labour in Supply Chains Act, is merely a reporting legislation without the prospect of driving corporate accountability, the Parliament, with the support of the Mining Association of Canada, still passed the weak legislation. It is instructive to note that the sponsor of Bill S-211, a member of the Senate, is now sponsoring Bill S-285. Considering the history of Bill S-211, the outcome of Bill S-285 may not be different if it passes at all. Indeed, it has been noted that bills sponsored by individual senators “do not have the backing of government bills and have historically had less success in becoming law.”
Therefore, strong political support is needed to limit corporate influence and enhance the prospect of passing the Bill. The government of Canada, other senators, and members of parliament must support this Bill because it is of such national importance that it calls into question Canada’s international obligations to protect human rights. Without compromising on its international obligations, the Parliament must facilitate consultation with rightsholders, businesses, and industry associations to create clear guidelines that make compliance with the Act easy for corporations and access to justice realistic for rightsholders. In sum, Canada must find a way to embed corporations into society.
Conclusion
Instead of a conclusion, I offer thoughts about future directions. This piece examined the latest legislative effort to impose environmental and human rights obligations on Canadian corporations through Bill S-285, which seeks to amend the CBCA. According to the Bill, in addition to the directors’ role of pursuing corporations’ interests, directors must also consider the interests of the environment and society. The Bill also empowers rightsholders to enforce corporate obligations through a derivative action. I argued that the Bill sets Canada on the right course in alignment with its international obligations to protect human rights. If passed into law, the Bill will redesign the current corporate governance model from a shareholder primacy to a stakeholder model. It will also increase the prospect of access to remedy for rightsholders. Although the CBCA amendment is not a substitute for mandatory human rights due diligence legislation, the amendment, if successful, moves Canada closer to this goal. At the same time, it will likely be resisted by the corporate class, which may lead to its death or weakening. To rescue the Bill from corporate capture, the Bill must be backed by strong political support. Only then will Canada be catching up with the rest of the world.
Akinwumi Ogunranti is an Assistant Professor at Robson Hall, University of Manitoba, Manitoba. He holds a BL (University of Ilorin, Nigeria), LLM (Schulich School of Law, Dalhousie University, Canada), and PhD (Schulich School of Law, Dalhousie University, Canada).